2015 Marks Mixed Trend For Pharma Sector

India's pharmaceutical industry, which began the year 2015 with the implementation of the uniform code of marketing practices (UCPMP), has had mixed trends that had least uniformity when the year comes to a close. But, the year, though didn't give any major surprises for the sector, saw quite a few developments that would have a bearing on 2016 and the future.

The Rs 1,50,000 crore worth drugs pharmaceuticals industry is currently one of the most robust sectors in India. This significantly large generic drug manufacturing industry, which caters to both domestic and most of the world markets, has got more than 15,000 manufacturing units, mostly owned by Indian origin companies. Although India's 2005 adoption of product patent regime in pharmaceutical industry in compliance with the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has given comparatively more prominence to foreign drug makers in the new and innovative medicine space, the market is still largely controlled by local companies with their proven capabilities in generic drug making.

While consolidation in the highly fragmented industry continued in 2015, the year also saw almost the same pace of foreign direct investments flowing into the country as it has been in the last few years. And the regulatory challenges, mainly by the US, the largest export market for Indian drug makers, remained a big concern for the industry this year too.

Policy
The voluntary Uniform Code of Pharmaceutical Marketing Practices (UCPMP), which came into effect from January, promised better adherence to ethical practices by the industry in promoting sales. While the code that was issued by department of pharmaceuticals was meant to prohibit drug makers from offering gifts to doctors to prescribe their products, the government is now planning to make it mandatory as the voluntary code has made only little impact.

Indian pharmaceutical industry is currently known for its aggressive marketing techniques mainly by bribing the doctors. The government has been trying to put this under control.

VK Subburaj, secretary, department of pharmaceuticals, said September that the government found it difficult to enforce a voluntary code and hence planning to make it compulsory. Although the move will inspire great confidence among patients and demonstrate the country's commitment to a high level of ethics and compliance medicine marketing practices, it is going to certainly sensitize the pharmaceutical companies in the years to come.

The new code is likely to force drug makers to keep a detailed list of their marketing expenses and also put strict control on sponsorship of so called medical conferences and travels of medical practitioners by drug makers apart from prohibiting medical representatives from employing any inducement or payment to gain access to healthcare practitioners. The code also bars supply of free medicine samples to any person not qualified to prescribe such products.

The passage of insurance bill early this year was another impactful policy reform which will go a long way in the healthcare sector, where pharmaceutical industry has a critical role to play. This bill raised the foreign investment cap in insurance sector from 26 per cent to 49 per cent, which is expected to boost the much needed expansion of medical insurance penetration in the country, thereby supporting all stakeholders in healthcare including pharmaceutical companies.

This policy reform was necessary for expanding the penetration of insurance in the country which is very low at present.

Making the profit margin under check, the government had again increased the coverage of price control on 8 new drugs to treat diabetes and hypertension this year. This was in addition to the earlier 652 medicine packs based on 348 formulations of essential medicines controlled through Drug Price Control Order, which was implemented in 2014. The new expansion of price control coverage was mainly initiated to address the issue of affordability of essential medicine for the treatment of non-communicable diseases (the biggest disease burden of the country now) in the country.

Regulatory Action
Many top pharma companies, including two top drug makers Sun Pharmaceutical Industries Ltd, Dr Reddy's Laboratories Ltd, have come under the scanner of US Food and Drug Administration (FDA) for manufacturing quality issues. Companies will have to address this challenge for a sustainable and compliant growth over next decade.

While Sun Pharma is already struggling with the FDA's import ban on the factories owned by its newly acquired Ranbaxy Laboratories, the Dilip Shangvi-led company was also issued a warning letter by the FDA on the company's large manufacturing plant located at Halol in Gujarat in December.

Dr Reddy's Lab also came under the FDA scanner in November the regulator found the company's three manufacturing units located in Andhra Pradesh and Telangana non-complaint with current quality manufacturing norms.

Mergers and Acquisitions
Industry has witnessed an increase in cross border deals. Important deals included US generic major Mylan's acquisition of the $750 million purchase of the female health business of Famy Care Ltd in February and Lupin's $880 million acquisition of US-based Gavis in July and Pfizer's global acquisition of Allergan (which will have an impact in India).

According to global consultancy PwC's India life science practices leader Sujay Shetty, this trend will continue in the near term given the low valuation and the need for Indian companies to increase their scale to compete in the increasingly competitive generic markets, as well as increase their presence into the innovator side of the business.

IPO
2015 was a year that marked good fortune for healthcare companies in the capital market. While Devi Shetty-promoted cardiac specialty hospital Narayana Hrudayalaya Ltd and diagnostic service provider Dr Lal's Pathlab had an successful initial public offer (IPO) subscription and a listing in the later part of the year, another most successful capital market entry this year was marked by the public offer of Alkem Labaratories Ltd, unlocking its value after 40 years of its existence in the Indian drug industry.

Outlook
Industry experts and analysts predict much better prospects in the overall healthcare sector comprises of drugs and pharmaceuticals, healthcare delivery, medical devices among others. Major thrust on preventive care in an informed society also makes the prediction for consumer healthcare, wellness and diagnostics sector.

An early December proposal by the government to set up a the country's second exclusive medical device industrial park at Mihan special economic zone in Nagpur is seen as a major boost to the country's medical devices industry. The country, which is still highly import-dependent of medical devices, needs the industry to be developed locally and this proposal along with a policy suggestion to formulate a separate set of regulation for medical devices, taking it away from the drug standards regulations, will have a major impact on the sector in the years ahead.

Nevertheless, the policy reforms such as the creation of a separate ministry for promoting Indian's traditional healthcare systems including Ayurveda, Yoga, Siddha among others in the end of 2014 had positive outcomes in 2015 as consumer health products and traditional medicines in this sector witnessed some momentum this year and it is expected to see significant rise in 2016.

"2016 would be the year where both pharmaceutical and FMCG (consumer healthcare) would see a substantial rise in herbals, naturals and Ayurvedic segment," says Philipe Haydon, CEO, Himalaya Drug Company.

The affinity towards herbals amongst consumers will transition from a 'fad' to a conscious lifestyle choice, and this means, consumers will seek value for money spent, he says.

The industry also see the emergence of 'Wellness' as a more structured segment with the birth of niche wellness products, that address chronic and recurring lifestyle ailments.